The BMO 2.99% “No frills” 5 year fixed rate will end up costing you more money in the end.

Consider this, the majority of Canadians that take a 5-year fixed mortgage end up switching and/or adding to their mortgage prior to maturity. There are endless reasons for this, including:

Upsizing, job loss, separation/divorce, death of an applicant, or refinancing to:, get a lower rate, get a lower payment, make an investment purchase, consolidate debt, pay for medical expenses, fund a child’s education, pay for a renovation, or meet personal needs..

The BMO “Low rate mortgage” will NOT allow you to refinance or switch to another lender within your 5 year term. You are ONLY allowed to refinance with BMO. And considering that in 3 – 4 years rate will be higher, you will not have the luxury of shopping around. You only have the option of BMO’s posted rates at the time of refinancing, versus the most competitive rates in the industry which are usually 1-2% lower than posted rates.

Ok, so you don’t think that you will have to refinance or switch lenders in 3 – 4 years? Fair enough… This product only allows you to take a 25 year amortization, versus the 30 year amortization that most Canadians take. This substantially lowers your buying and refinancing power.

If you are thinking of refinancing your current mortgage and switching to the BMO product to save money. You are on the right track! What you should be doing is switching to a lower rate, then increasing your payments back to where they were at before the switch. This will allow you to pay off your mortgage years sooner! Only one problem with this plan…. This product has extremely low pre-payment privileges….

The smartest decision you can make, is taking a 4 year product at 2.99%. There are some great 4 year products on the market right now. These products allow 30 year amortizations, 20-25% pre payments privileges, and you are allowed to break out of the mortgage anytime with regular pre-payment penalties.